Stability: The costs of relying on imports for a significant portion of domestic supply are most obvious during a period of worldwi~e shor...
Stability: The costs of relying on imports for a significant portion of domestic supply are most obvious during a period of worldwi~e shortages. Import prices move above domestic prices (6, p. 11-8). Moreover the recently released study for the American Iron and Steel Institute by Pifer, Marshall, and Merrill (PMM) (23, p. 21), claims to have found evidence that: . . . the Japanese have aggessively manipulated export pr ices in order to sell steel in the U. S. market. In times of shortage, very sharp premiums have been extracted from U.S. customers; in times of surplus capac~ty, prices have been reduced precipitously tb iincrease export volume. -226- The PMM study made a fundamental error in its cost estimation procedure that invalidates its results. The authors inappropriately compare their estimated costs 'of making carbon steel products, with the prices of all steel products. This leads to an overstatement of Japanese costs in relation to prices by an amount which may dominate any of the wdumpingW effects they allege. 2l/ Nonetheless, .---. -.- the PMM study is another one that expresses concern about the cyclical pricing of Japanese and European exports. The essence of these arguments is that the Japanese and Europeans rely on exports,
by cyclically varying their export prices more than their domestic prices; to smooth out cyclical fluctuations in demand., Thus, it is alleged that these countries have a dual pricing structure with exports priced higher or lower than domestic products, depending on whether there is a domestic boom or recession; i.e., there is a cyclical pattern to the dumping. The Friden study (7), cited above, purports to have found evidence of a dual pricing structure. However, there are a number of limitations with respect to using the Friden data for the hypothesis that is being examined here: (1) Friden's data terminate in 1967; (2) no statistical analysis or tests on the data were preformed; and, most 76/ For the details chapter. df this argument, see the appendix to this ¡ -227- importantly, (3) Friden did not separate the time periods into boom and recession per iods so that relative export pr ices might be examined in relation to their hypothesized values. Thus, while Friden founó limited evidence of dual pricing structures in countries other than the United States, he did not find evidence of a cyclical pattern in the dual pricing structure. To elaborate on point (3)
, this study designates the ..~ . export price of a steel commodity divided by its domestic price as the relative export price. The cyclical dual pricing structure hypothesis asserts that relative export prices rise in booms and fall in contractions. Consider as an example the years 1974 and 1975. Since 1974 was an international boom year in steel demand, and 1975 was an international recession year, the cyclical dual pricing structure hypothesis asserts that relative export prices would be higher than average for 1974, and lower than average for 1975. If in a contraction year, such as 1975, we found relative export pr ices above average, that would be evidence tending to disconfirm the cyclical dual pricing structure hypothesis. It is, therefore, necessary to examine first whether a country is experiencing above or below average steel demand in a given year. If steel demand is above (below) average, then the cyclical dual pricing structure hypothesis asserts that relative export prices will be above (below) aver age. For the purpose of analyzing the cyclical dual pricing i hypothesis, a new var iable for each country and each product -228- was developed. For a boom year, this variable is defined as the relative export pr ice for that year minus the sample average for aii years. For a contraction year, it is defined, as the average for all years minus the relative export price for tha t year. The cycl i cal dual pr ic ing hypothes i s al leges that these numbers are positive for boom years and contraction Years. Take Japanese carbon steel bars as an example.
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